What’s Old is New Again: the Expansion of Sharing Tax Information and the Effect on Employment and Immigration Cases

IRS and DHS Formalize Tax Information Sharing

In April 2025, the IRS and the Department of Homeland Security (DHS) formalized a Memorandum of Understanding (MOU) enabling Immigration and Customs Enforcement (ICE) to create a system of information sharing between the agencies. Under the MOU, the IRS can share tax return information for non-tax criminal investigation purposes. More specifically, the MOU permits ICE to request sensitive tax information from the IRS for purposes of pursuing immigration related cases and deportations. Given the Trump administration’s focus on undocumented workers, the implications of the MOU likely will go even further as sharing this information will result in tax enforcement against employers of deported individuals.

Generally, the Internal Revenue Code (IRC) places significant limitations on the ability of the IRS to share taxpayer information. The MOU invokes an exception to IRC § 6103, the statute which protects the confidentiality and disclosure of tax returns and return information. The criminal investigation exception under Section 6103(i)(2) allows a requesting agency, ICE in this instance, to make a request that includes the following: taxpayer name and address; tax years for which return information is sought; the relevant federal criminal statute under which ICE opened a criminal investigation; and the reason disclosure of the tax return information is relevant to the criminal investigation. The MOU is limited in scope, but it remains to be seen how broadly it will be applied going forward.

While IRS assurances suggest compliance with Section 6103 and privacy laws, there has been some pushback, and concerned citizens have asked Congress to block the agreement because they argue it undermines longstanding protections for taxpayer privacy. Acting IRS Commissioner Melanie Krouse and Chief Privacy Officer Kathleen Walters both resigned in April in protest of the agreement, and legal challenges were launched. However, a federal judge declined to enjoin the MOU in May, holding that the IRS is acting within the bounds of IRC Section 6103(i)(2).

This agreement represents a major shift from decades-long IRS practice and norms, which historically have emphasized taxpayer confidentiality and privacy and where tax examinations have been separate from immigration enforcement. Critics have warned that the utilization of this exception in civil deportation matters is severely overbroad and will potentially lead to misuse of taxpayer information and an undermining of public trust.

Given the Trump administration’s focus on undocumented workers, it is easy to see how this will be used as another tool for the government to pursue a wide variety of enforcement actions. Immigration and tax issues overlap in many areas, and immigration sweeps and audits of workplaces could lead to investigations and enforcement against those very workplaces, including criminal and civil cases regarding employment and payroll tax.

Overview and Historical Context

The recent MOU between the IRS and DHS represents a continuation of longstanding enforcement practices where immigration and employment tax violations are investigated together. Federal authorities have historically used IRS Criminal Investigation (CI) resources to target corporations suspected of employing unauthorized workers, often leveraging employment tax violations to support probable cause for investigations. This is not a new trend; rather, employment tax noncompliance often provides a direct path that strengthens broader immigration-related enforcement actions.

This year, the Department of Justice – Criminal Division (DOJ) and the Office of the Attorney General issued memoranda to DOJ personnel emphasizing immigration enforcement as a core priority. These memoranda underscore a policy environment that favors aggressive, coordinated investigations, particularly where corporate actors are suspected of circumventing both tax and immigration laws.

As enforcement priorities shift and information-sharing expands between the IRS and DHS, employers must take note that employment tax compliance is increasingly becoming a top issue in immigration enforcement.

Examples of Ongoing Immigration and Tax Enforcement Coordination

Criminal enforcement matters, dating back to 2011 and beyond, demonstrate how immigration and tax investigations continue to be linked.

• 2011: Three restaurant chain executives indicted on federal immigration and tax charges (ICE) – Charges include conspiracy to harbor illegal aliens and willful failure to collect and pay employment taxes.
• 2022: Key West labor staffing conspirator pleads guilty to immigration fraud (IRS CI) – Defendant admitted to knowingly employing unauthorized workers and filing false tax returns.
• 2025: Suburban Chicago businessman indicted on immigration fraud charges (IRS CI) – Alleged to have provided fraudulent immigration documents and evaded payroll tax liabilities.

Broader Implications

With the passage of the One Big Beautiful Bill Act, DHS is set to receive a significant influx of funding to boost law enforcement. This involves $165 billion for DHS over the next decade, including an allocation of $8 billion for ICE to hire 10,000 new officers and $700 million for new data and IT infrastructure investments. These indicators point to a significantly heightened enforcement capacity for the agency.

Enforcement around taxation and immigration issues can be broad. Employers may face potential exposure in audits or investigations tied to immigration or payroll tax issues, workplace raids, subpoenas, or other administrative actions.

Key Takeaways

Tax information is set to become a powerful tool in the continuation of immigration enforcement. Using tax information this way is a significant departure from past precedent and potentially opens the use of previously protected information to other areas of law enforcement. Employers should be thinking proactively about consulting legal counsel to resolve any potential or current compliance issues or areas of risk in this heightened enforcement environment.